If the federal government attempts to eliminate a budget deficit during a depression, this will (LO4) a) alleviate the depression b) contribute to inflation c) make the depression worse d) have no economic effect

It is essential to understand the key terms to answer this question correctly. Budget deficit refers to a situation when the government's expenses exceed its revenue. A depression is a severe and prolonged downturn in the economy, characterized by high unemployment, low production, and reduced consumer spending.

Let's analyze each of the given options one by one: a) Alleviate the depression: If the government tries to eliminate the deficit during a depression, it would mean either increasing revenues (e.g., raising taxes) or cutting expenses (e.g., cutting public spending). In a depression, raising taxes may further decrease consumer spending, while cutting public spending may lead to lower economic growth. Hence, it may not alleviate the depression. b) Contribute to inflation: Inflation refers to a sustained increase in the overall price level. Eliminating a deficit during a depression would involve actions that do not increase the money supply in the economy. Therefore, attempting to eliminate the deficit during a depression is not likely to contribute to inflation. c) Make the depression worse: As mentioned earlier, attempting to eliminate the deficit could lead to higher taxes and reduced public spending, which in turn decreases consumer spending and economic growth. Therefore, the depression may become worse. d) Have no economic effect: It is unlikely that the government's actions would have no economic effect, as this contradicts the fundamental concepts of fiscal policy and its impact on an economy.

Based on our analysis, the correct option is (c) make the depression worse. Attempting to eliminate a budget deficit during a depression can lead to lower consumer spending and economic growth, which may worsen the depression.